Most everyone who has heard of Dow theory understands the elementary principle of confirmation and non-confirmation between the Industrials and the Transports.  There are many other principles of Dow theory that few understand.  Among these principles are the concept of Primary movement verses Secondary movement, bull and bear market phasing buying and selling spots verses confirmation of buy and sell spots, and value to name a few. 
 
I noticed from my study of Dow theory that there was an historical relationship between previous bull and bear markets. I have talked about the bull and bear market relationships here before, but it has been a while and it’s now time to review this topic again.  When studying about the bull and bear markets of the late 1800’s and very early 1900’s, I realized that the bull and bear markets that the early Dow theorists wrote about were much shorter in duration than they are today.  Now understand that cycles are not apart of Dow theory, but when I looked at the early bull and bear market periods as defined by our Dow theory fathers, I realized that these bull and bear market periods consisted of a single 4-year cycle.  The bull market was one and the same with the upside of the 4-year cycle and the bear market was one and the same as the downside piece of the 4-year cycle.  

For a little more than a year now I've been telling you that the broad market and the economy have been in a state of transition. That transition period is now complete. After the start of the Iraq war we saw the beginning of a strong cyclical bull market that lasted for three years. A year ago, however, we began to see signs that the bull market was in the process of coming to an end.

The biggest danger signal I told you about last year involved the sectors that make up the market. Leadership in the market moved into the energy and commodities sectors. This kind of transition usually takes place at the end of a bull market. Consequently, the sectors that had led the market up until then - technology and Internet stocks - topped out and have been weak ever since. At the start of this year the vast majority of sectors were in the process of making stage three tops. Many are now in the red for the year.

The correction in gold stocks continued yesterday and this morning gold is trading down 7 dollars at around 620 ahead of the 8:30 CPI numbers and Bernanke's statement and testimony to Congress scheduled for 10:00. I'd expect gold and the rest of the markets too to rebound with his testimony. I really doubt it will be as scary as people think and has the potential to give hope to bulls. All he has to do is suggest that he's on watch for signs of slowness in the economy and will react to it and the markets should rally.

Although the DOW and Nasdaq had gotten smashed by the end of last week, the week was fairly uneventful for gold stocks, which is where I'm invested. So I didn't make any changes to my positions. I didn't buy anything or sell anything. In fact, I didn't really watch the action that closely at all, spending most of the time working on the new website. Which, by the way, I expect to be beta testing next month.

"

Gold stocks seem to be pausing at this level. I would expect this week to be flat to down for gold stocks. You have to expect a pause at some point due to the huge run they've have since June. The stocks need to consolidate their gains before moving higher. It's hard to say exactly how long they'll pause. They could quickly dip a percent or two(support is now on the 150-day moving averages for the HUI and XAU) and then go screaming back up again or else just trade in an extremely narrow range for two to three weeks. Some sort of consolidation is only natural though and the overall big picture remains bullish.